Director Disqualification and Coronavirus Bounce Back Loans
The Bounce Back Loan Scheme was introduced to provide financial aid to small and medium-sized businesses affected by the coronavirus pandemic. The scheme enabled small and medium-sized businesses to borrow up to £50,000 with no fees or interest payable for the first 12 months. After 12 months, an interest rate of 2.5% per year becomes payable and the government guarantees 100% of the loan.
The scheme is now closed to new applications, but we are seeing an increasing number of investigations by the Insolvency Service into directors’ conduct in relation to possible abuses of the scheme. More recently, the Insolvency Service has banned multiple directors following investigations into their conduct. The investigations showed that the directors in question had misused the loan funds for improper purposes or inappropriately applied to use the scheme.
For example, a director of a cleaning company applied for a bounce back loan in the sum of £30,000. At the time, the company was clearly insolvent which the director knew (or ought to have known) meaning that there was no prospect whatsoever of repayment of the loan. The director was subsequently banned for a period of nine years. This is a “middle bracket” disqualification, which is reserved for serious cases which do not merit the “top bracket” of 11 to 15 years.
In addition, joint directors of a chicken takeaway business applied for a loan in the maximum amount of £50,000. The joint directors were ineligible for the loan as they had sold the business some years earlier. They were banned accordingly.
A director of a pub also applied for a bounce back loan. It transpired upon investigation that he had transferred a significant proportion of the loan to his personal bank account. The amount transferred was almost 3 times his normal salary. He was disqualified accordingly.
Alan Draycott, the Deputy Official Receiver has said:
“The Government loan schemes have provided a lifeline to millions of businesses across the UK – helping them to continue trading during the pandemic and protecting millions of jobs. As these three cases show, the Insolvency Service will not hesitate to investigate and use our powers against those who abused the COVID-19 support schemes.”
It is clear that the Insolvency Service is continuing to investigate possible abuses of the Coronavirus Bounce Back Loan Scheme. If you have received any correspondence from the Insolvency Service regarding your conduct in relation to the scheme or otherwise, please get in touch with our specialist director disqualification solicitors today.